Investment gurus also err: Warren Buffett admits $900 mn mistake

Multi-billionaire Warren Buffet has admitted he made a “big mistake” when he bought the debt of a company that’s now almost bankrupt without asking for advice from his long-standing business partner.

'The Oracle of Omaha' bought two billion dollars worth of debt
from Energy Future Holding (EHF), the company he says he wished
he had “never heard of.” The company was founded seven
years ago to buy Texas electricity utilities, and now is facing
the risk of going bankrupt.

The investment guru made the purchase without asking the opinion
of his long-serving partner Charlie Munger.

“Unless natural gas prices soar, EHF will almost certainly
file for bankruptcy in 2014. Last year, we sold our holdings for
$259 million. While owning the bonds, we received $837 million in
cash interest. Overall, therefore, we suffered a pre-tax loss of
$873m. Next time I’ll call Charlie,” Mr Buffett wrote in his
annual letter to shareholders of his Berkshire Hathaway Inc.

His failure coincided with Berkshire Hathaway’s underperformance
of the S&P 500 index for the tenth time, which is still not
bad, considering the company’s 49 year performance.

“We have underperformed in 10 of our 49 years, with all but
one of our shortfalls occurring when the S&P gain exceeded 15
percent,” said Buffett.

Since the end of 2008, Berkshire Hathaway's book value increased
by 91 percent and made about $134.9 thousand while the S&P
500 index grew by 128 percent. It’s the first time S&P
managed to overcome Berkshire’s yield over the five-year period.

“I believe both Berkshire’s book value and intrinsic value
will outperform the S&P in years when the market is down or
moderately up. We expect to fall short, though, in years when the
market is strong – as we did in 2013,” Buffett said.

Despite Berkshire Hathaway's failure, the 2013 international
holding showed a record net profit of $19.5 billion for the
company, surpassing the previous year's results by 31 percent as
crisis-period investments began to soar.